Property price curbs carry structural implications

1. Property price curbs carry structural
implications
April 2012

2. Content
The ‘facts’
Price curb remains a challenge when market shows vigour
Price fall, volume remains
Further policy actions to come
Local government revenue squeezed
Poor economic growth and declining land sales a double
whammy

3. The ‘facts’
March new-home prices in major
cities posted first time YOY decline
since the properties curb 2 years
ago (April 2010).
Down 0.4%yoy, down 0.29%mom
A majority of 38/70 surveyed cities
saw declines in price (Feb. prices were
up 0.17%,mom decline in 27cities)
Price moments still uneven
Chongqing, Harbin saw price hikes
mom
Sales volume still intact
Sales volumes returned to growth in
March(after declines in Jan, Feb)

4. Price curb remains a challenge when market
shows vigour. Price fall, volume remains
If sales volumes keep improving, prices will be difficult to
curb
Property developers continue to offer more discounts to
attract buyers in a squeezed market
Prices on a few projects in Beijing and Shanghai have been
raised as buying appetite are reappearing (Credit Suisse)
Increased volumes have upward pressure on price

5. Further policy actions to come
ING’s prediction of a likely scenario for the price curb is:
A decline of at least 10% yoy
It took 5 months to wipe out 4% in the later half of 2011, by
this rate another year is needed to reach a decline of 10%yoy.
However, this is quite unpredictable as a few forces are at
play:
Volume strengths is resisting price declines
While mom declines in prices have actually accelerated
The effectiveness of further policy actions will push price down
faster
A 10% decline will not likely happen within the next 6 months

6. Local government revenue squeezed
Poor economic growth and declining land sales a double
whammy
Budgetary implication: Local government revenue squeezed
Poor Lack of
Economic landsales
Growth revenue
Scenario likely to continue

7. Mechanics between property price curbs
and local government revenue
Local government
Property price Market Price fall leading
Policy curb Further policy land sales
inflation adjustment to volume drops
revenue affected
Property prices inflation prompts policy actions (curbs on
purchases, mortgages and developer credits)
Market adjusts by putting in incentives to attract more buyers
(discounts offered)
Further policies are put in place to control both price and
volume (direct control on development projects)
A drop in volume lead to a drop in construction
Landsales to developers drop
Local government revenue relies on landsales, this is squeezed,
leading to budgetary constraints.

8. The end